Monday, January 13, 2014

Turbo Tax for Estates

Over at Bogelheads we read: Turbo Tax for Estates

Postby btenny » Sun Jan 12, 2014 1:58 pm
My Father in Law passed away last May and my wife is the executor. He had a house and lots of investments. There are multiple heirs and we have already done a lot of investment sales and distributions and so forth. We are now trying to decide how to file his 2013 personal taxes as well as estate taxes for 2013. We have a ton of records and will be getting lots of 1099s from his bank and broker in the next few weeks.

Should we consider doing his taxes with Turbo Tax ourselves or should we just pay up for our CPA to do the taxes. I am sure the CPA will charge us $1000 or ??? for the two returns as he already charged us $700 to talk to us about setting up the TIN numbers and doing the initial distributions and so forth. But I am also sure we will have to spend a ton of time telling the CPA what the various investments are and what we did to sell various assets and make the transfer to the heirs, etc.. We have been doing our own taxes with TT for years and feel quite comfortable with investments and related issues. So we will have to do a lot of work to make sure the ruturn is correct. So should we just try to do the returns ourselves with TT?

Any help or comments would be appreciated.
Postby btenny » Sun Jan 12, 2014 4:50 pm
Postby WorkToLive » Sun Jan 12, 2014 4:53 pm
I am sorry for your and your wife's loss. don't have any experience with this personally, but what I would likely do is start myself with TT and see how it goes. If it feels like it's too much, then id reconsider.mid also consider taking it to a tax professional for review after I did my best to complete the return. That might save some money, too.
Postby HouseStark » Sun Jan 12, 2014 6:47 pm
I'm a tax pro and undoubtedly biased, but I think you should consider your lack of experience in preparing a final 1040 and an estate 1041 and the work you would need to put into getting it right and having confidence that it is right. I would want to get this done correctly and not have to deal with problems down the road. The idea of preparing a return and having a tax pro review it may have some value, but you would need to make sure you establish the bounds of the engagement with the tax pro. You didn't mention whether the estate was closed in 2013, so there may be a 2014 1041 return to prepare next year, as well.

Any work that you would have to do to assemble, organize and provide information to a tax pro would be the same work that you would have to do in preparing the returns yourself, so that should not be a variable to consider between options.

A fee of $1000 for a final 1040 and an estate 1041 sounds like it could certainly be reasonable.
Postby HouseStark » Sun Jan 12, 2014 6:51 pm
I have no experience with TurboTax, or any other retail software that could be used to prepare a 1041, so I can't offer any evaluation on that.
Postby jebmke » Sun Jan 12, 2014 6:53 pm
I did a simple estate with a single beneficiary by hand. The estate had only one tax year and was very very simple. Even though I've done hundreds of 1040s, for a 1041 I'd go with a pro for anything remotely complex, multiple beneficiaries, multiple tax years.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Postby bsteiner » Sun Jan 12, 2014 7:36 pm
The lawyer could have obtained a taxpayer identification number and given it to you and the accountant for less than $700.

Many accountants aren't familiar with fiduciary income tax returns, so the lawyer handling the estate should speak with the accountant to get a sense of whether the accountant is comfortable with these returns. The lawyer should also review drafts of the fiduciary income tax returns.

You'll have to select a fiscal year or the calendar year. Many estates use the calendar year to make it easier for the accountant. If the estate is too small to pay Federal estate tax, you'll take the administration expenses on the fiduciary income tax returns, so in deciding on the choice of a fiscal year you'll want to consider how best to use the administration expense deductions.

It will likely cost more than $1,000 for an accountant to do both the final individual income tax return and the first fiduciary income tax return.

Some executors are able to do the returns themselves using TurboTax or H&R Block (formerly TaxCut), or pencil and paper, while others can't.
Postby sscritic » Sun Jan 12, 2014 7:40 pm
My sister has been filing two 1041s every year for the last 22 years since my mother died and left money in two trusts. She uses tax software. I don't know if an estate 1041 is any different than a trust 1041, but form 1041 claims it is for both (U.S. Income Tax Return for Estates and Trusts). I don't know how hard it was the first year, but I know she hasn't been paying an accountant $1,000 a year for the last 22 years.
Postby bsteiner » Sun Jan 12, 2014 7:48 pm
There are a few differences between Federal income taxation of estates and Federal income taxation of trusts, but they're similar. Congress has gradually eliminated some of the differences. The return for an estate is more complicated because estates have more nonrecurring items that require planning, such as the estate administration expenses. Estates can select a fiscal year, while trusts have to use the calendar year. On the other hand, estates are exempt from having to pay estimated taxes for the first two years. There are other differences as well.

There are also some differences at the state level, in particular with regard to when a state considers an estate or trust to be taxable as a resident estate or trust. In the case of trusts, different states have different ways of determining when a trust is taxable as a resident trust, and some states distinguish between a trust created during lifetime and a trust created by Will.
Postby Kevin M » Sun Jan 12, 2014 10:33 pm
I've settled two estates on my own; both involved living trusts and I used TT for both with no help from a CPA or attorney. The regular versions of TT are fine for the final 1040 (this year you may need a higher-level version if you use an online product, but all versions of the desktop product still cover all forms), but you need the Home & Business product for the 1041.

I don't recall any difficulties with the final 1040s. The first 1041 was more difficult; some of the choices are confusing and TT guidance alone was insufficient, so you'll probably need to read the IRS instructions carefully if you give it a go.

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Postby larryc » Sun Jan 12, 2014 11:48 pm
I think you need TurboTax Business for a 1041. It costs up to $150.
Postby Hondo » Mon Jan 13, 2014 7:23 am
Yes, you will need TurboTax Business, which is not to be confused with "TurboTax Home and Business." The 1041 preparation in TurboTax Business is rather bare bones with not nearly the level of "walk through" assistance you get when using TurboTax for a 1040. There could be several decisions that need to be made for the 1041, and you may be better off using an experienced professional.

larryc wrote:I think you need TurboTax Business for a 1041. It costs up to $150.


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